Industry News

It’s said the first person to use the phrase ‘cash is king’ was ex-Volvo CEO Pehr Gyllenhammar in 1988, after the 1987 stock market crash. He may have been right, and of course, he was talking about cash flow rather than actual cash. Now, however, cash is no longer king. Cash has been overthrown by the ability of more people to pay for goods and services digitally. Many of the new digital payment systems in this new cashless society are backed by big names. Others are from smaller disruptive fintech startups. In this article, we’ll look at how and why this has happened, as well as the effect on the broader economy and society.

‘The acquisitions of digital payments infrastructure used to power the fast-evolving money transfer and remittance industries is gathering stream.’

Rise of digital payment

The reason the popularity of cash has declined so dramatically is the availability of digital payment options. Digital payments are seen as a quick, easy and secure alternative to cash.

The introduction of contactless debit cards heralded a revolution, no more signatures or PINs needed for smaller purchases. You do not need to be tech-savvy to be able to use contactless: it’s fintech everyone can use.

Many big names have entered the digital payments / cashless society arena. Apple Pay allows consumers to pay for products and services using their iPhones. In 2017 user numbers for Apple Pay were 87 million worldwide, Google is now rolling out its version Google Pay to Android users.

PayPal pioneered online payment and made e-commerce possible for businesses across the globe. Their latest solution, One Touch, makes it possible to pay by using your fingerprint. You don’t even need to find your debit card or phone anymore.

Sweden is leading the world in take-up of digital payments. The Swedish Central Bank predicts cash will make up 0.5% of all payments by 2020. In Sweden, it is the startups that are making the biggest waves. The portable point-of-sale device, iZettle, which was recently acquired by PayPal for $2.2bn, came from Sweden, as did Klarna, which allows consumers to split payments or pay at a later date.

The Impact of a Cashless Society

Regarding the broader economy, the rise of digital payments has led to an upturn in consumption. A study by Moody’s Analytics estimated that higher card usage added an extra $296 billion to global consumption between 2011 and 2015.

Because it’s more difficult to commit fraud or hide money without cash, the decline in cash use has led to a contracting of the grey economy. This means the amount of money governments can take in tax will rise.

When you look at its impact on society, there are some who see dangers in the decline of cash. A cashless society tends to have the biggest impact older people, or people who are less tech-savvy, who are more likely to be on lower incomes. These groups may feel they are being left behind when shops begin to stop trading in cash, as some are already doing.

‘Going forward, the use of blockchain tech and cryptocurrencies, as demonstrated by the recent partnership between financial transfer company MoneyGram and cryptocurrency group, Ripple, could super-charge the fintech and cashless industry.’

Mike Woods, Fintech Sector Principal

The future is bright for fintech

While it’s unlikely cash will disappear altogether, the decline in use is set to continue. This creates a massive opportunity for fintech companies to fill the space. Here are some fintech companies we are keeping an eye on.

GoCardless – Is the easy way to collect Direct Debit. Already serving more than 30000 businesses, perfect for recurring billing and B2B invoicing. https://gocardless.com/

Transferwise – Founded in 2011 with a vision to make moving money around the world fast, transparent, fair and eventually free. https://transferwise.com/

Mike Woods, Fintech Sector Principal

With 30 years’ international experience and has operated at board level across global businesses, spanning startups to multi-billion public and private companies in the Banking, Retail, Fintech and Payments industries. He was responsible for e-commerce and payments at Natwest Bank, and later worked at Royal Bank of Scotland, with over 1,000 people working for him innovating digital and payment solutions. He has founded such companies as Aconite Technology, a VC-backed software solutions business, and as CEO grew the company internationally into 22 countries, across the USA, Europe and Africa, selling to a PLC in December 2014.

If you would like to talk to me about developments in the fintech industry which can boost your business, please send me an email at mike@hampletonpartners.com